Monday, February 27, 2012

I am surprised by how flippantly some people chose a co-founder. The two biggest reasons startups fail are running out of money and founder conflicts. This post suggests some criteria for choosing a co-founder.

Steve Jobs and Steve Wozniak

At Mixer Labs, I was extremely lucky in my choice of co-founder. Choosing a co-founder is the most important decision you will make when starting your company. Your co-founder(s) will be like your spouse - you will spend most of your time every day with them, and you will need to agree with them on all the big decisions (what product to build, how to launch it, whether to sell the company...).

Additionally, your co-founder will also be fundamental to establishing the company's culture and work ethic. The initial team that grows out of the two (or few) of you will determine everything the startup does, and equally importantly, how it does it.

Here are some of my top criteria for finding a great co-founder:

1. Ability To Communicate With Each Other (On The Tough Stuff):

Can you have an honest and frank conversation with your co-founder? Can you tell them when you think they made a bad decision or are doing things for the wrong reason? Can you give honest and critical feedback - and can you take their honest and critical feedback? Can you be honest with them in your reasons for doing things that may be in your own personal interest?

Startups are stressful, and you need to be able to have honest conversations with your co-founders despite the stress. If you can't call each other out and learn from mistakes, then your startup won't be able to advance.

The basis for the above is mutual respect and trust, and an understanding that your are in the fight together. Like any relationships, co-founder relationships can have a lot of ups and downs. They key is the ability to talk through the bumps along the way.

2. Alignment On Key Questions:
I would suggest discussing the above with your prospective co-founder even if you have known them for many years. There is a big difference between "being friends" with someone and starting a company with them.

What are their objectives? Why a startup?

There are many reasons people start a company. Some people want to make a few million dollars. Some are doing it for the impact to the world. Some want to be an internet celeb. Make sure you and your co-founder have alignment on this - otherwise you might end up with one founder trying to force an exit for $5 million when Google comes calling, while the other wants to build something huge.

What do they care about in a company culture?

What are the 3-5 key things they want the company culture to have? Do you agree with them?

Hiring?

Do they want to hire full stack generalists or specialists? What are the 3-5 traits they consider most important in a new hire?

How do they view investors? What is an investors role in the company?

One friend of mine got fired as CEO of his company after his co-founder sided with the VCs during an important strategic decision. The reason his co-founder did it? Because he felt that once the VCs invested in the company, the strategic decisions were theirs to make. This is a naive view, but some people have it. You should check how your co-founder views the world.

How ethical are they?

You are trusting this person to safegaurd the next 4-10 years of your life.

What is your role versus theirs?

Discussed below in detail.

What do they want to be doing day to day?

What do they want exposure to along the way?

3a. Agreement On Roles.
Many of the biggest companies had a clear breakout of which founder was in charge/CEO early on (e.g. Steve Jobs, Bill Gates, Larry Page in 1999, Mark Zuckerberg) and the one who was the technical lead or supporting actor (Steve Wozniak, Paul Allen, Sergey Brin, the other N Facebook founders).

If both of you want to be the CEO (one is usually given the title of "President" as a compromise), and you agree all major decisions are made "as equals", you are likely signing up for eventual conflict. In the early days it might feel like decisions come easily and you and your co-founder are well aligned so you think this structure works. Be forewarned- without a clear sense of who can call the shots on what, and who can make the final-final call if needed, you are signing up for a messy future:

Even if you agree on 95% of things, the 5% of times you disagree may freeze the company up for many months. You will each claim the right to veto. This means nothings gets agreed to and the company can't move forward. This could be the death of a startup, whose entire core premise and competitive advantage is the ability to move fast.

You need to have an explicit decision maker set up up front. Don't punt on this painful conversation in the early days. My own 2 cents is 99% of the time the CEO should be able to make the final call not only on business issues, but also on product, if needed.

You need a pre-agreed upon way to resolve conflicts (e.g. "our external advisor Melissa will be the tie-breaker")

Competition between founders may emerge. The CEO is usually the person who gets invited to panels, who pitches VCs (this is not glamorous, but people think it is), and who is often the external face of the company. If both people want to be CEO, the one who did not become CEO may feel like they got a raw deal by not getting as much exposure.

This is something that emerges over time. You may have the most humble, well-intentioned co-founder but 6 months later they may start to feel they are missing out. If this happens, try to find a way to create opportunities for them to get some exposure without compromising the role of CEO.

3b. Non-Overlapping Skills (unless you are all coders)
Usually a startup can only deal with one product visionary (a separate post coming on this later). Two people setting the vision for the product means that often you either get design by committee (mediocre) or split directions. This does not mean look for people with bad product sense. Rather, it means you need one person who is really strong at product that you have explicitly agreed will set the direction of the product.

Similarly, 3 business people starting a technology company is usually a recipe for disaster. There is usually not enough "business" stuff for 3 business co-founders to do (unless it is a brand-building/operations heavy exercise versus a tech company - e.g. Warby Parker, Birch Box or the like - in which case it is easier to carve out roles). This will exacerbate 2a above.

The only time it is beneficial to have overlapping skill sets is if all the founders are developers. Even then, make sure to define who is responsible for what (e.g. who is the CEO etc.)

4. Important Nice To Haves:
There are some additional characteristics of a co-founder that is optimal (although not strictly necessary) to have:

Have known them for a few years.

This helps dramatically with the ability to have very open conversations with them - you already know, respect, and trust one another. So you know feedback that is giving or a hard conversation you are having is coming with the right intent.

Have worked with them directly.

People may act dramatically different in a social situation versus a business one. Optimally, you have worked with them in a business or other project based context. Once hard work, and money, enters the picture, people may change the way they act in all sorts of dramatic ways.

If you worked with them before, you have a pre-set working style and cadence, so you hit the ground running faster. You also probably have well defined roles for working together, and trust each other in those roles.

Any other things to look for in a co-founder? Let me know in the comments.

Wednesday, February 1, 2012

"When there are big waves-like the annual tide bore at the mouth of the Qiantang River in Hangzhou province-local daredevils, known as nong chao er (弄潮儿), have been playing the tides for many centuries.

Classical Chinese poets described with amazement the site of nong chao er swirling around in the deadly current, swimming and turning somersaults while they held aloft brightly colored flags."

I can't think of a better quote to sum up what starting a company is like.

1. What Wave Are You Riding?
Often, there are macro changes that drive a company to be successful. There are many examples of products that launched too early (pen computing), with a later version reaching massive product / market fit (palm pilots). The best entrepreneurs ask "Why now?" - what is the meta trend that creates a window of opportunity that I can take advantage of?

Whatever people are going to do for fun in 20 years is probably predetermined. Winning is more a matter of discovering it than making it happen. In this respect at least, you can't push history off its course. You can, however, accelerate it.

There are a number of macro trends happening before our very eye: smart phone market share (enabling e.g. Square), the rise of tablets, new ecommerce models (Gilt, GroupOn), rapid fire global reach for new products (Samwer brothers).

The smartest entrepreneurs ask themselves "why now?", "what has changed?" and build products that take advantage of newness or big trends that are reshaping our world. In hindsight these big trends get labels such as "Sharing Economy" (AirBnB, LendingClub, Kickstarter...), and "Social Curation" (Pinterest). The best entrepreneurs implicitly see what is coming and manage to ride the big tide that will reshape the ground beneath it -before something is obvious enough to be called a trend.

2. Turning Somersaults in a Deadly Current.
Big changes bring both outsized opportunities as well as leave a lot of dead startups and incumbents in their path. People forget that in the 1980s there were literally thousands of computing and peripherals companies - almost all of whom died. Anyone remember Apollo Computers? Or Symbolics? Or Quantum? Like any piece of history, only the victors are remembered. And the victors are the ones who rode out the turbulence of the big waves that shook their industry (Microsoft moving into O/S when it wanted to sell developer tools to IBM, IBM changing to a services company, Intel's massive pivot into microprocessors and out of memory, etc.)

Starting a company feels a lot like being lost in a riptide current and trying to keep your bearings. You are tossed to and fro by the market, your employees, and your users until you either drown or find that through some miracle your product is actually loved by somebody.

3. Waving Brightly Colored Flags.
To some extent, starting a company is a bit of a fuck you to the world. It is telling people that you want to drive your own destiny and really believe you can do something better than anyone else. That you can build something truly great that people will love. While you are being battered by the tidal forces that are re-shaping our world, you have the gall to wave a brightly colored flag to let the world know, without a doubt, that you are one to watch.